Start-ups will be Ireland’s ticket to foreign direct investment in the coming years. Conservative mindsets that are distrustful of entrepreneurs will only get in the way, warns John Kennedy.
In 2007, while driving into work one morning, there was this teenager on the radio called Patrick Collison, then 19, who along with his 17-year-old brother John had just sold their start-up Auctomatic for US$5m (€3.2m) to a Canadian company called Live Current Media. I listened spellbound as Tipperary teenager Patrick recounted how, months previously, the company, which attracted investment from Silicon Valley’s Y Combinator, was turned down by an Irish state agency for funding because they were unable to “match” the amount they sought. “They were teenagers for God’s sake,” I shouted at my radio, prompting questioning looks from drivers stuck beside me in traffic. Following the US$5m deal being concluded, the radio presenter asked Patrick his immediate plans. “To fill up my fridge,” he quipped.
Today, Patrick and John Collison run one of the hottest technology firms in Silicon Valley, an e-commerce enabling company called Stripe which was recently valued at US$5bn. The company has attracted more than US$280m in several funding rounds from investors that include Peter Thiel, Elon Musk, Sequoia Capital and American Express.
This yarn came back to me last week when the day following Budget 2016 I stood in Dublin’s so-called ‘Silicon Docks’ area and a friend was crestfallen about how the budget had failed to meet the expectations of Ireland’s growing entrepreneur class. “They may as well book their flights now,” he said dolefully about how entrepreneurs are increasingly setting up in the UK because tax policies and benefits in Ireland aren’t keeping up with the times.
I suspected he was taking this harder than necessary. But, the more I thought about it, I felt he was right.
Budget 2016 failed entrepreneurs and start-ups miserably. It was a short-term budget aimed at garnering votes for a spring election. Rather than fixing structural issues preventing start-ups from growing in Ireland, it tinkered with things like capital gains tax and a punitive PAYE regime for entrepreneur-owners.
Within an hour of the budget being read out, the chair of the Irish Venture Capital Association, Brian Caulfield, caustically tweeted about Ireland, ‘the best small country in the world to be Google’. Caulfield wasn’t having a go at Google, he was pointing out that all supports and tax benefits in the state are oriented towards tech giants who have indeed created thousands of jobs and put Ireland on the global tech map.
But what he really meant was that is a short-term vision that plays on the tricks of the past, and fails to see the big changes coming around the corner.
The future of FDI depends on entrepreneurs
The thousands of jobs from tech companies in the future won’t come from long-established, venerable industry titans; they will come from start-ups that are attracted to set up here by the presence of other start-ups. Remember, Apple, Microsoft, Google and Facebook were still quintessential start-ups when they first located in Ireland but their needs were more straightforward – low-paid people and generous tax breaks.
As we head for the 2020s, the only raw material the next Apple or Facebook will want will be of the human kind who require big salaries and generous tax breaks on share options.
The head of a major tech company in Galway told me recently that his superiors in Silicon Valley were weighing their decisions for new overseas projects towards locations that could prove they had a thriving local start-up scene.
He said the reason for this is they want the entrepreneurial talent and the technology that they could snap up in one go through a process known as acqui-hiring. This is no bad thing, it generates wealth and experience.
Without vibrant start-up scenes around Ireland, it will be harder to catch the next waves of inward investment. A template for the kind of future we have can be seen in Red Hat’s €63.5m in cash acquisition of Waterford TSSG spinout Feed Henry. That’s how Red Hat came to Waterford, and it wasn’t an FDI decision. It was an acquisition because the local talent pool created a top notch, globally-focused software firm with relevant technologies and skills.
Suffice to say, I suspect there is a deep-rooted conservatism towards entrepreneurs in Ireland. Especially tech entrepreneurs. Maybe if they were building things with bricks rather than bytes they’d get an easier time of it, but often the people making these decisions have never taken a risk bigger than getting into their car every day to drive to work from some leafy suburb. Maybe they’ve never even sought a job or created a job in their lives, having benefited from a college milk-round and joining a ‘big five’ accountancy firm in the 1980s or 1990s.
The reality on the ground for founders of small companies is far different, riskier and far more daunting than anything they can realise. They don’t know the sleepless nights or the missed opportunities.
‘I suspect there is a deep-rooted conservatism towards entrepreneurs in Ireland’
The week before Budget 2016 was Start-up Gathering, where across Ireland some 400 events aimed at encouraging people to be fearless and start up their own business took place.
In the months leading up to it there were calls to make obvious changes to the outdated BES/EIIS scheme to compete with a more compelling scheme they have in the UK that makes it easier for people to invest in small companies and for owners to reward staff with share options.
“I feel like we were banging our heads off a brick wall,” my friend lamented.
Brian Caulfield chose a more colourful term, “horses**t”, to describe the feeble, limp handshake that was Budget 2016 for Irish entrepreneurs.
Prior to Budget 2016, Caulfield pointed to the UK to show what a transformative and job-creating impact a vibrant angel capital environment with innovative funding approaches for young firms can have. He said Ireland needs to reform its personal taxation system to remove barriers and disincentives to entrepreneurship and create real incentives both for entrepreneurs and those who fund them.
‘You’d have to laugh if it wasn’t so serious’
Immediately following Budget 2016, Caulfield expressed his disappointment, pointing out that the new €550 tax credit for entrepreneurial owners of firms is still only a third of the overall PAYE tax credit. He lambasted the fact that the 20pc capital gains tax (CGT) is restricted to the first €1m — a once-in-a-lifetime benefit.
Changes to the BES/EIIS were ineffectual, he said, and he also pointed out that the Budget contained nothing on share options.
“Any notion that this is a transformative improvement in the environment for start-ups or that it represents tax equalisation for entrepreneurs or self-employed people, or that it creates a level playing field with the UK, any notion along those lines is incorrect.
“This was an enormous missed opportunity to address structural issues around taxation and share options. I am hugely disappointed,” Caulfield said. He didn’t mince his words.
If an entrepreneur misses an opportunity, often it can be fatal for the business. If a highly-paid business executive on a six-figure salary misses an opportunity in Ireland, it is business as usual.
This mindset needs to change.
The timing of the unpleasant business around the Web Summit leaving Ireland last week was unfortunate because it distracted from a real debate about Budget 2016 and how Ireland cherishes its entrepreneurs, not only in technology but across a gamut of sectors from life sciences to food and tourism.
If the Government survives the next election and wants to continue its work in leading Ireland to a prosperous future then it needs to realise that start-ups and entrepreneurs rank up there with multinationals.
Especially if you are serious about jobs growth into the future because the majority of future jobs growth will come from entrepreneurs.
Yes, every start-up business is a risk, some will fail. And they most definitely will fail if policies are in place that almost doom them from the start.
It’s not about free money or handouts or Garda escorts for some geeky VIP no one has heard of, it’s about creating a level playing field.
It is about giving entrepreneurs the breathing space to think clearly and compete.
It is about being competitive against nearby start-up ecosystems like London that have begun to create the acqui-hire culture Silicon Valley bosses crave.
It is about a fair, fighting chance.
Entrepreneurs should not be punished for creating jobs.
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